On Monday, both the Shanghai and Shenzhen stock markets experienced a volatile rebound. Global capital markets have recently seen significant fluctuations, with a strong rebound following a sharp decline in the stock markets of Europe, America, and Japan. The market is also focusing on the upcoming Federal Reserve interest rate meeting in September, where the Fed may initiate a rate-cutting cycle. The current discussion has shifted from whether there will be a rate cut to the extent of the cut, whether it will be 25 basis points or a direct 50 basis points.
This week, Federal Reserve Chairman Jerome Powell will attend the annual Jackson Hole symposium, a significant financial event where Powell is expected to deliver a key speech. This has become an important meeting for observers to gauge the Fed's next moves.
The latest released U.S. non-farm employment data and the manufacturing ISM data were significantly below expectations, and even the U.S. unemployment rate has risen, triggering the Sam Rule, which may indicate that the economy is entering a recession. This has led many investors to anticipate that the Fed's monetary policy will shift from preventing inflation to stabilizing growth. The CPI data, which reflects U.S. inflation, has been trending downward from a peak of 9.5% to the current 2.9%. Although it has not yet reached the long-term inflation target of 2%, the trend of decline has formed. At this point, the Fed's continued maintenance of high interest rates would actually harm the recovery of the U.S. economy. This tightening monetary policy has put significant debt pressure on U.S. businesses and residents. With the U.S. government's debt reaching $35 trillion, exceeding the U.S. GDP by nearly $10 trillion, this is also an important driving force for the Fed to lower interest rates.
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The recent rebound in the U.S. stock market also reflects significant fluctuations in technology stocks. Although we cannot yet confirm that the U.S. stock market has peaked, at least the significant fluctuations in U.S. technology stocks are an important signal of a potential peak. Professor Sam, the proposer of the Sam Rule, mentioned that some data divergence, such as the recent U.S. retail data exceeding expectations, may mean that the U.S. economy will not fall into a recession in the short term. However, a prompt rate cut is the best choice for the Fed, and September 18th will be the date when the Fed announces its interest rate decision. At this meeting, it is expected that the Fed will cut rates by 25 or 50 basis points, initiating a rate-cutting cycle.
The Federal Reserve is known as the world's central bank. Once the Fed shifts its monetary policy, it will trigger more central banks to follow suit with rate cuts, and the People's Bank of China will also have more room for rate cuts and reserve requirement ratio reductions. Because once the Fed cuts rates, the U.S. dollar index will retreat from its high position. Non-U.S. currencies will appreciate, and in fact, the Chinese yuan has already appreciated to some extent in advance. If the Fed accelerates the pace of rate cuts, it will promote the appreciation of the Chinese yuan exchange rate and reduce the amplitude of exchange rate fluctuations. This would be beneficial for attracting foreign capital inflows into Chinese yuan assets, as foreign capital inflows must consider both whether the asset price is undervalued and the potential exchange gains or losses due to exchange rate fluctuations. From a global capital market perspective, European, American, and Japanese stock markets are at historical highs, while A-shares and Hong Kong stocks are the value lows of the global capital market. The next step for the global capital market will be a rebalancing of funds, with some funds taking profits from European, American, and Japanese stock markets and seeking new investment opportunities. A-shares and Hong Kong stocks are undoubtedly a value low that could attract global capital inflows. Warren Buffett always manages to significantly reduce his positions before the market peaks to avoid the risk of a bubble burst, so Buffett's significant reduction of U.S. stocks by $90 billion in the second quarter is an important signal and a warning that everyone should be aware of.
From a value investment perspective, the current valuations of A-shares and Hong Kong stocks have already fallen below the historical average, and many stocks are near their historical lowest valuations. At this time, it is recommended that everyone not be too pessimistic, as opportunities often arise when the market is extremely desperate. The market is currently at a stage where three inflection points are overlapping. The first inflection point is the economic inflection point, with the second quarter likely being the quarter with the lowest GDP growth for the whole year. With the gradual implementation of policies to stabilize economic growth, it is expected that GDP growth in the third and fourth quarters will pick up, thus achieving the annual target of around 5%. The current moment is also a policy inflection point. On July 31st, the Central Political Bureau meeting proposed that in the second half of the year, policies should continue to be implemented with greater force. At the same time, the implementation of fiscal policy will drive demand. The Fed is about to cut rates and is about to start a rate-cutting cycle, not just a one-time cut. This will also provide more opportunities for the People's Bank of China to implement monetary easing, and the increase in liquidity is expected to raise asset valuation levels.
The famous folk stock god Lin Yuan often says that investing is investing in crises, especially in these two years, many good stocks have been wrongly killed, and investor sentiment is close to freezing. From a contrarian investment perspective, this is exactly the right time to layout and the opportunity to achieve excess returns. Plant in spring and harvest in autumn; when the market is low, it is often a good opportunity when the market picks up. Now everyone is looking forward to the arrival of the golden September and silver October market, and from various factors, there are indeed some positive signals. The third inflection point is that the market inflection point is expected to arrive. The channels for funds to flow into the market have basically been opened, and many channels for funds to flow out of the market have been gradually closed. This is an important aspect of promoting the balance of market funds.
During this period, the market has experienced a reduction in trading volume and fluctuations, with the daily trading volume of the Shanghai and Shenzhen markets once shrinking to less than 500 billion, only half of the high point. The so-called "low volume sees low price" is also an important indicator that the market may be at an inflection point. At present, the dividend yield of the CSI 300 has exceeded the yield of ten-year government bonds by more than one percentage point, and the seesaw of stocks and bonds is expected to gradually tilt. Some recent operations by the central bank in the government bond market have also led us to see that the balance of stocks and bonds may be reversed. Once the bond market falls, it will be an important driving force for the stock market to rise. So now everyone needs to maintain confidence and patience, stick to high-quality stocks or high-quality funds, and wait patiently for the arrival of the next round of the market, which is the best investment strategy.